National Savings Schemes may increase profit rates

Investments shift to other competitive avenues.

ISLAMABAD:

The government may increase profit rates of National Saving Schemes to keep the avenue lucrative as bonds have become an alternate for investors with a spike in its returns of late.

The move may also help attract new individual-investments in the National Saving Schemes to stabilise falling deposits, as the government’s decision to ban institutional investments has resulted into negative growth in the National Saving Schemes deposits last year.

A decision to this affect is likely to be announced by the end of this month, an official of the finance ministry told The Express Tribune. If the government decides to increase mark-up on investments in national saving schemes, it will be applicable only on fresh investments, they added.

The increase may be in the range of 16 to 40 basis points, depending upon the instrument the investors choose. However, analysts advocate at least 100 basis points – equal to 1% – increase to keep the NSS papers attractive.

The latest auction of Pakistan Investment Bonds (PIBs) has unnerved the market, as the yield on ten-year bonds rose to 13.11 per cent, 41 basis points increase in a single month. Similarly, the yield on five and three years PIBs increased 21 basis points and 10 basis points, respectively. This has made the NSS papers less attractive.

“If the government wants to keep a source other than the banking industry for the budget deficit open, it will have to increase profit rates of the national saving schemes, said Muzammil Aslam, an analyst at JS Global Capital.

According to sources, the government may increase return on Special Saving Certificates to 11.83 per cent, an increase of 16 basis points over current rates of 11.67 per cent. The authorities have also worked out 39 basis points increase in profit rates on Regular Income Certificates. The return on RICs is likely be jacked up to 12.15 per cent against existing rates of 11.76 per cent, official said.

The Defense Saving Schemes rates may jump to 12.26 per cent, an increase of 36 basis points over present rates of 11.9 per cent.

The rates of Behbood Saving Certificates and Pensioners’ Benefit Accounts are already higher than the PIBs rates. However, the government may also decide to increase profits on these schemes as well.

After the government banned institutional investment in national saving schemes last year, the Central Directorate of NSS is struggling to achieve this year’s saving targets.

The NSS received new deposits of Rs109.5 billion from January 2011 to January 2012, which is Rs9.3 billion or 7.8 per cent less than the net investments received in the corresponding period of the previous year. The gross investments during this period remained at Rs467.6 billion. However, an amount of Rs358 billion was either returned after maturity or withdrew by institutions in wake of the ECC’s ban.

Published in The Express Tribune, March 20^th, 2012.